Quarterly Newsletter (Q2 2019)

[Editor’s Note: This is an independent post written by Jack. This post discusses our savings rate and expenditures for Quarter 2 (April – June) of 2019. This post may contain affiliate links. Please read our disclosure for more info.]

One of our major goals for 2019 (discussed in our Written Financial Plan) is to save at least 40% of our gross income for the year. We barely hit that goal during Quarter 1, but we are really excited to have met our savings goal this quarter (46.37%)! We find tracking our spending/savings to be very useful and would encourage anyone to do the same! We use Mint, but Personal Capital is another popular (free) online tool that can track and categorize your spending if you don’t feel like tracking it all yourself. 

Remember that are a number of ways to calculate your savings rate (%). Regardless of the method you choose, it is important that you remain consistent and also understand how others calculate their savings rate so you can compare apples to apples. We calculate ours by dividing our savings by our gross income (+ employer retirement contributions). Our savings calculation:

  • Includes:
    • EmployER Retirement Contributions
    • EmployEE Retirement Contributions
    • Money NOT spent (labeled as “Other Savings”).
  • Does NOT Include:
    • Mandatory Deductions (federal/state tax witholdings)
    • Optional Deductions (insurance)
    • Expenditures

Click HERE to view a copy of the spreadsheet we use to calculate our savings rate. Feel free to make a copy of it and use/edit it to meet your needs.

Major Expenditures:

  • House = $2400
    • Washer/Dryer – $2080
  • Rent (for previous apartment) = $2318
  • Food/Dining = $2382
    • Groceries – $1409
    • Restaurants/Bars – $863
  • Travel – $2367
  • Health & Fitness – $1179
    • Annual Family Indoor Climbing Membership – $1000
  • Auto = $897
    • Auto Insurance (6 Months x 2 cars) – $530
    • Fuel – $367
  • Business Expenses (not related to website) – $2864
    • Most of these are actually related to my wife’s military/physician stuff and will actually be reimbursed (which would technically decrease our expenditures and increase our savings rate), but we haven’t received the reimbursement yet, so it didn’t right feel ignoring these for the time being.

Notice ~38% of that is AUTOMATICALLY directed to retirement accounts every paycheck (TSP, 401a, 401k, 457b), which is not only convenient, but also keeps us moving forward towards our goal fairly passively. We had two large personal expenditures included a washer/dryer for our new home and an annual indoor climbing gym membership (one time fee for the whole year). Our traveling included a week in Charlotte, NC where we stayed at a Marriott for 5 nights completely free using credit card points. We spent more on food this quarter than last, so that is an area we should be more conscientious of. 

In Other News:

My wife and I recently bought a home! We followed our Written Financial Plan by using a 15-year mortgage for less than 2x our gross income and will be making extra principal payments monthly.

We also decided to make some adjustments to risk/asset allocation:

OLD (80/20):

  • 55% US Stocks (40% Large-Caps & 15% Small-Caps)
  • 20% INTL Stocks
  • 5% REITs
  • 20% bonds/cash

NEW (85/15):

  • 55% US Stocks (40% Large-Caps & 15% Small-Caps)
  • 20% INTL Stocks
  • 10% REITs
  • 15% bonds/cash

So we are still using a 5-fund portfolio, but since our investment horizon is pretty long (10+ years), we felt comfortable going slightly more aggressive. We decided to increase our REITs by 5% (Real-Estate Investment Trusts) allocation since they have a lower correlation with US Stocks.

I’m excited to see what our savings rate looks

What is your savings rate looking like so far this year? What are your major expenditures? Do you find true value in them? If not, what steps can you take to reduce your spending in those categories? Comment below!

Book Review – The Only Investment Guide You’ll Ever Need

The Only Investment Guide You’ll Ever Need

  • Tobias, A. P. (2010). The only investment guide you’ll ever need. Boston: Mariner Books/Houghton Mifflin Harcourt.
  • Category: Investing & Financial Planning
  • Recommended Financial Literacy Level: [Novice]+
  • Recommended Audience:
    • Those interested in increasing their financial literacy (not limited to strictly investing as suggested in the title of the book).

Tobias’s comprehensive guide to investing is filled with insightful anecdotes and actionable tips throughout each chapter. His book really might be the only investment guide you ever need, and I do not make that claim lightly… I am a big fan of other introductory investing books, such as the The Bogleheads’ Guide to Investing. Tobias’s book, though, has made its way higher on my recommendation list because of the sheer number of life “hacks” it provides. Here are just a few I wrote down for myself:

  • Photocopying your wallet in case it gets stolen.
  • Buying two one way tickets instead of a round trip for savings.
  • Full freezers insulate better, so fill empty space with containers of ice to use at later dates.
  • Placing “riskiest” investment holdings in a taxable account to take advantage of tax-loss harvesting (for losses) or charitable contribution deductions (for gains).

The Only Investment Guide You’ll Ever Need is broken up into three parts composed of 11 chapters and an appendices. See below for descriptions of each:

Part One – Minimal Risk

  • Ch. 1If I’m So Smart, How Come This Book Won’t Make You Rich?
    • Describes what his book is and what his book is not.
  • Ch. 2 – A Penny Saved Is Two Pennies Earned
    • Literally hundreds of tips/websites you can use to save money.
  • Ch. 3 – You CAN Get By on $165,000 a Year
    • Discusses budgeting, saving, and setting realistic goals.
  • Ch. 4 – Trust No One
    • Examples why you should not blindly trust when invetsing.
  • Ch. 5 – The Case for Cowardice
    • Describes all types of bonds, notes, and other “safe invetsments”.
  • Ch. 6 – Tax Strategies
    • Introduction into income taxes and ways to reduce your tax burden.

Part Two – The Stock Market

  • Ch. 7 – Meanwhile, Down at the Track
    • 13 tips/suggestions about stock investing.
  • Ch. 8 – Choosing (to Ignore) Your Broker
    • Makes his case for why you should [passively] manage your own money and investments.
  • Ch. 9 – Hot Tips, Inside Information — and Other Fine Points
    • Discusses several types of investment vehicles and reasons why you should or should not consider each one.

Part Three – Family Planning

  • Ch. 10 – Kids, Spouse, Heirs, Folks
    • Estate planning, caring for aging parents, and examples of how to instill financial literacy in your children, 
  • Ch. 11 – What to Do If You Inherit a Million Dollars; What to do Otherwise
    • A step-wise plan about what to do when inheriting money and tips on how to save/spend without it.

Appendixes

  • Earning 177% on Bordeaux
    • Contains a great wine recommendation.
  • How Much Life Insurance Do You Need?
    • A formula you can use  to determine if, and how much, life insurance you “need”.
  • How Much Social Security Will You Get?
  • A Few Words About Taxes and Our National Debt
  • Cocktail Party Financial Quips to Help You Feel Smug
  • Selected Discount Brokers
  • Selected Mutual Funds
  • Fun with Compound Interest
  • Still not Sure What to Do?

Biggest Takeways:

I particularly enjoyed Tobias’s method on calculating the amount of life insurance needed. His “formula” considers your heirs/dependents, social security, the time horizin of funds you would like to provide for, funeral expenses, and assets considerations. Since I currently have no kids and my wife is not dependent on my income, I really only need enough life insurance to cover funeral expenses, which the life insurance provided by my employer more than covers already.

SCENARIO: Let’s say we did have a newborn kid, though, and wanted to replace my income (~50k/year) for the next 25 years (through kid college) in the event of my untimely death:

  • STEP 1: Tobias recommends aiming for 75-85% of your income, so let’s say $37,500 in my case for 25 years, to provide through college ($937,500).
  • STEP 2: My current social security survivor benefit for the newborn would be $1,377 a month until they turn 18 ($297,432).
  • STEP 3: The difference between what is “needed and what my S.S. benefits would provide is $640,086 (or $25,603/year on average). So, for 25 years, we would mulitply by 18 ($460,862)
  • STEP 4: My employer policy already covers a full year of my salary which would cover funeral expenses and several months of time off for the spouse.
  • STEP 5: Subtract our assets, which we will say is $100,000 for this scenario ($360,862).
  • STEP 6: Round up to the nearest $50,000 ($400,000).
  • So, I should take out a $400,000 policy to meet our needs in this scenario.

So, his formula is quite useful for removing the guesswork and potential anxiety associated with determining how much life insurance to buy.
Speaking of, you should totally log into https://www.ssa.gov/ to view your social security benefits if you haven’t yet! You can view your earnings records and your estimated benefits based on retirement, disability, death, etc.

Final Thoughts:

This book is jam-packed with HUNDREDS of ways you can improve your financial life. Trying just one of his recommendations will, in most cases, easily pay for for the cost of the book and much more.

By and large you should manage your own money (via no-load mutual funds). No one is going to care about it as much as you. And no one but you is going to manage it for free.

Andrew Tobias

If you’d like to support our mission and are interested in purchasing The Only Investment Guide You’ll Ever Need, please click here for your purchase! 

Have you read The Only Investment Guide You’ll Ever Need? What are your thoughts, likes/dislikes, and biggest takeaways? Comment below!

6 Things To Shop Around For When Buying A Home

My wife and I just bought our first home together! Those of you that have already gone through the process before understand that buying a home can be quite a learning experience. I actually bought and sold one home before this joint purchase, and I learned quite a lot between my first and second home buying experiences. The first time around I was completely new to the process and just went with affiliates of my lending company rather than doing any of my own research or shopping around, which was a costly mistake. The following is a list of several items I would recommend you shop around for.

1) Real-Estate Agents

Do not be afraid to interview and vet your agent. Real-estate is a competitive industry and I would be highly surprised if there is a shortage of agents in your area. Do not be afraid to find a different agent if yours is not meeting your needs or is not acting in your best interests. Some agents will try and show you homes outside of your price range, that meet your needs, or that is located in a suboptimal or unpreffered area just to get a sale. If that is the case get a new one! You are not obligated to use the first agent you talk to. 

2) Mortgage Lender

Shopping around for a mortgage loan can save you a LOT of money. As an example, I applied for a mortgage loan through a partner company of the first agent I vetted and the best interest rate offered to us was 4.25%. I shopped around and was able to get a 3.375% fixed interest rate WITHOUT buying points (paying more money up front to buy a lower interest rate). That 0.875% may not seem like a big deal, but if you put it into context of the life of our $160,000 15-year loan request:

  • Interest Paid Over 15-Years @ 3.375%: $44,122.84
  • Interest Paid Over 15-Years @ 4.250%: $55,656.18

As if that is not a staggering enough of a difference ($11,533.34), the amount is even more significant on a 30-year loan:

  • Interest Paid Over 30-Years @ 3.375%: $94,647.42
  • Interest Paid Over 30-Years @ 4.250%: $123,357.38

So you can see that 0.875% difference is literally tens of thousands of dollars you are losing over time ($28,709.96 difference in this case). Compound interest is a double edged sword – spending a few hours shopping around and comparing interest rates is definitely WORTH your time. Some companies are competitive enough to even match or beat interest rates offered to you by other companies, so do not be afraid to send them your pre-approval letters to start that conversation and potentially get an even better rate.

It’s also important to understand and compare the types of home loans available to you. To name a few:

  • Conventional – generally  has stricter rules and requires 20% down to avoid Private Mortgage Insurance (PMI). 
  • Federal Housing Administration (FHA) – much lower credit score and down payment requirement; however, PMI will be required for the life of the loan.
  • Veterans Affairs (VA) – have much stricter rules but do NOT require a 20% down payment to avoid PMI.

Make sure to look into which options best fit your needs. Most people that qualify for a VA loan automatically assume they’re the best option. That is not always the case; it certainly was not for us (we do qualify for a VA loan but couldn’t get less than a 3.75% rate from lenders that offered VA loans).

3) Title Company

This is basically the law office that is going to mediate the transaction between the buyer and seller. Sometimes you can shop for this service and sometimes you can’t. It depends on your mortgage lender and your real-estate agent. You can and should ask what each line you are being charged for represents and if it is a service you actually want/need. You might be surprised to learn what exactly you are paying for.

4) Home Inspection

Home inspections are not usually required for purchasing a home; however, it is HIGHLY recommended you get one. Depending on the size and location of the home this price can start around $200 and go up. Don’t let that dissuade you – home inspections are money well spent. Hiring a licensed inspector not only informs you about aspects of the home that may require attention, but also allows you to revisit the negotiating table. For instance, you can ask that any/all issues be rectified OR lower your initial offer to compensate for the difference. Make sure your inspector is licensed, well-reviewed, and is willing to have you present during the inspection.

5) Property Appraisal

Home Appraisals are required if you’re borrowing money (mortage lenders are not going to let you borrow more money than your home is worth) to finalize your loan and are a service you may or may not get to shop for. Many lenders only use particular appraisal companies and handle this side of things, requiring an appraisal deposit up front. If you can shop for it, though, make sure it is a reputable company.

6) Home Insurance

Make sure to protect your property against disasters that are prevalent in your area (beyond fire – things like earthquakes, flooding, etc.). More than that, do not just go with the first quote you receive. When shopping around make sure to also get quotes for your auto insurance or other insurances to try and take advantage of bundling discounts and such. Many people recommend shopping around for insurance every 1-2 years or so to ensure your rates are remaining as low as possible.

Final Thoughts

If you have already bought your first home (or second home) hopefully you did not make some of the same mistakes I did and cost yourself thousands of dollars! In any case, we hope you found something useful in this post!

What have your experiences buying a home been like? What are some actionable tips or considerations you would recommend to our other readers? Comment below!

Why you should stop buying NEW stuff!

To be clear, we are not saying to stop buying stuff. Contrary to popular belief, Financial Independence does not mean you have to stop spending entirely or even allocate every penny toward retirement. Instead, we believe in becoming more intentional about our purchases, spending on things that will bring true value to our life. As a general rule, my wife and I make an effort to avoid impulsive purchases, sitting on an item of interest for days, weeks, or even months before taking the plunge. Most of our “new to us” acquisitions are all used items that are high quality, well-maintained, and listed way below their new retail price.

One Man’s Trash Is Another Man’s Treasure

We have all learned the hard way spending a little more up front on quality goods, that will stand the test of time, tends to save you money in the long haul. I have certainly bought my fair share of “cheap” stuff over the years trying to save few bucks… just to have it quickly fall apart and have to spend more money for a replacement. I believe that many people confuse “used” goods with “cheap” or “poor quality”, but that could not be farther from the truth. A few things I have learned over the years:

  1. As soon as you open/use a new item it is now used and its value diminished (in most cases). 
  2. Most people (myself included historically) do not actually want or end up using the stuff they buy, at least not long-term. We buy stuff and then life gets in the way or we were really just not as interested as we thought we were… then we end up getting rid of it, generally losing money in the process.
  3. If you are patient you will find someone that needs/wants money more than you “need” the item you’re trying to purchase. Leverage is a powerful negotiating tool (that may sound insensitive, but it is true).
  4. The reverse is true when selling items. If you are patient enough and asking a fair price, someone that is impatient or impulsive will buy it. 
    • Example: I sold my iPhone 7 November 2018 for $350 cash when the verizon/apple stores were only offering me around $150 trade-in value. It took me a couple months to find an impulsive enough buyer, but the additional $200 was worth the wait.
  5. Selling an item for what you paid, or near what you paid for it, is far easier and more realistic if you bought it used to begin with. I have sold many items over the years for equal or even more than what I paid for them at the time used.

You have most certainly heard the idiom, “One man’s trash is another man’s treasure.” The reality is we live in a world of consumerism. People like stuff, and most people prefer to buy their stuff new. Don’t let that be you. Use that truth to make your life better and wallet thicker.

Where to shop and/or sell?

There are several free websites, apps, etc. to shop around for used goods. My first stops (in order from top to bottom) are the following:

  • Facebook
    • Marketplace
    • Local Buy/Sell/Trade Groups
      • Just search your city “buy sell trade” and request to join your local group.
  • Craigslist
  • letgo
  • VarageSale
  • eBay
  • Amazon
    • They do not only sell new stuff. Be sure to look through their used options as well (especially for books). 

Tips when buying used…

  1. DO YOUR RESEARCH: Believe it or not, taking advantage of the ignorant or desperate is a profitable industry. Make sure you know how to inspect what you’re buying for damage, flaws, etc. OR require to meet with a local professional to get it inspected before following through with the transaction.
    • When selling my iPhone, I actually met the person at the verizon store to get it inspected before we completed the transaction.
  2. BE PATIENTPatience is critical. Buying/selling used goods is all about negotiating and one of your most valuable negotiating tools is time. If you are not in a rush to buy you’ll eventually land a great deal. If you aren’t in a rush to sell you’ll eventually walk away with more money.
  3. CASH ONLYNo checks and especially no Western Union. If they ask/offer to mail payment just move on. Some people prefer to use venmo/PayPal, and I will not try to disuade those individuals. Just make sure to read the fine print and protect yourself (its far easier for someone to scam you via electronic payments than with cash). If you are dealing with larger transactions, I would recommend spending a few dollars on a counterfeit pen. It’s okay to buy the pen new, haha.
  4. MEET IN PUBLICAnd preferably during the daytime.
    • Don’t do business with people not willing to get out of their car (speaking from experience here) or meet publicly.
  5. ALWAYS NEGOTIATE: When deciding to sell your item do some research on what a fair asking price is and then list your item just a bit higher. This way when a buyer makes an offer (very rarely will it ever be asking price) you will be at or close to your desired amount. Likewise, if you are wanting to buy something always offer lower and always say you have cash in hand.

What have we bought used?

The truth is several things over the years, but to name a few (and including prices where I can remember or reference back):

  • 2013 Hyundai Elantra (Paid: $13,000 in 2017 / New: $21,000+)
  • 2015 Macbook Pro 15″ (Paid: $1250 / New: $2200)
    • Pro Tip: You can private message sellers on eBay and offer to purchase directly through PayPal if they come off the price (most sellers will because they can avoid eBay fees that way), and you still get the buyer protection through PayPal itself.
  • Fiskar’s 18″ Reel Mower (Paid: $100 / New: $200)
    • This was our newest acquisition in preparation for the house we are closing on soon. I just bought it today (the day before this post goes live). It was listed for $150 on LetGo. I offered $100 cash and said I could meet now and they bit – it doesn’t hurt to ask!
  • Nintendo Switch (Paid: $300 / New: $450+)
    • Came with 2 games and extra controllers
    • I bought an additional game (Mario Odyssey) for $30 used. Held onto it for 5-6 months and then resold it recently for $40.
  • Outdoor Bluetooth Speaker (Paid: $100 / New: $200)
    • This was actually never used and came from someone on facebook marketplace who gets large quantities at wholesales.
  • DWALT Power Tools Set (Paid: $200 / New: $400+)
    • Included a drill, hammer drill, impact driver, sawzall, flashlight, two batteries, and a bag to carry it all in. I sold the hammer drill and impact driver for $150 and kept the rest (costing me $50 in total).
  • 16′ Telescoping Ladder (Paid: $50 / New: $200)
  • Trek Hybrid Bicycle (Paid: $400 / New: $1300)
  • Massage Table (Paid: $200 / New: $500)
    • I bought this as a surprise for us just over two years ago. This particular model would’ve cost ~$500 new and included some CDs, sheets, as well as the leg and face cushions. For the cost of less than two couple’s massages (or even one in some places) we bought this folding massage table. My wife and I exchange massages every 1-2 weeks or so while watching a show, listening to a podcast/music, or just talking. It’s been a great tool for spending quality time together.
  • Couches (Paid: $200)
  • Computer Desk (Paid: $20)
  • Entertainment Stand (Paid: $50)
  • Lawn Mower (Paid: $75)
    • Sold it for the same amount before moving.

Final Thoughts

All of the above items have added value to our lives through entertainment or sheer utility; furthermore, we have not had a single issue with any of them – I’m on my computer pretty much daily, driven over 40,000 miles on the car, used and lended out my drill dozens of times, and we could easily foresee the massage table outlasting us, haha. A great side-effect of buying used is we really don’t care if my car gets a door ding or our dog hangs out on the couch. We are not sacrificing quality to save a penny in the moment… we just prefer to buy quality at a discount.

Have you experimented with buying/selling used goods? What are some of your favorite used purchases? Comment below!

Video Tutorial: A Deep Dive Into Our Portfolio Spreadsheet

[Editor’s Note: This is an independent post written by Jack. This post may contain affiliate links. Please read our disclosure for more info.]

A few weeks ago I shared a post discussing our Retirement Portfolio and the Spreadsheet we use to track and rebalance our portfolio. Today’s post contains the promised follow-up video tutorial, which includes some examples on how we have used to aid us in rebalancing our portfolio.

This was my first go at experimenting with Quicktime for video/audio recording, so thank you in advance for your patience and feedback! The video turned out to be roughly 26 minutes in length… I guess that’s the teacher in me!  Moving forward we will definitely make an effort to try chunk videos into more discrete segments, but for now please feel free to use the time table below to jump around at your leisure:

https://www.youtube.com/watch?v=kB8BTIX7_Mg&feature=youtu.be

  • 0:00 – Introduction
  • 4:05 – Accessing the sharable spreadsheet file and making a copy via google docs OR microsoft excel.
  • 5:53 – Explanation of the “Simpler” version of our spreadsheet (labeled as “529s”). We actually use this very tab when adding new money to to our 529 plans (which are essentially a “two-fund” portfolio).
    • 7:57 – Rebalancing Example 1 – rebalancing via adding new money.
    • 9:15 – Rebalancing Example 2 – rebalancing after shifts in the market.
  • 12:25 – Explanation of the “More Complex” version of our spreadsheet (labeled “Portfolio”).
    • 15:35 – Rebalancing Example 3 – rebalancing via adding new money.
      • 16:05 – “5/25 Rule” & conditionally formatted cells
    • 17:46 – Rebalancing Example 4 – rebalancing after shifts in the market while avoiding “taxable events” in taxable brokerage accounts.
      • 19:00 – NOTE: I realize it is a tax-exempt fund so some taxes on the gains would be avoided upon the sale of those funds, but many people do not invest in municipal or tax-exempt bonds so I wanted to make sure to bring that point up in the video.
      • 23:20 – additional column explanations.
  • 24:43 – wrap-up & final thoughts.

Final Thoughts:

I apologize for the abrupt ending and ad-lib performance. Admittedly, I did not prepare an exit strategy, and after 26 minutes of non-stop, unscripted, unedited recording I just stopped the video in panic, haha. We live and learn as the saying goes! I am looking forward to learning new skills and growing as we put together more instructional videos in the future!

Leave us some feedback on how we can improve in the comments below or through our Contact Us page. Let us know what other video tutorials you would be interested in!

Tracking Your Savings Rate

[Editor’s Note: This is an independent post written by Jack. This post discusses our savings rate and major expenses for Quarter 1 (January – March) of 2019. This post may contain affiliate links. Please read our disclosure for more info.]

One of our major goals for 2019 (discussed in our Written Financial Plan) is to save at least 40% of our gross income for the year. At TeachFI we believe in maintaining transparency with our readers, so JJ and I will each (in seperate posts) be sharing our saving rate and spending quarterly/annually. We feel this is an optimal way to get a pulse of your savings rate (since spending can vary quite a bit month-to-month) and categorical spending habits. We highly recommend you go through this exercise as well because the results can be quite enlightning for informing your current and future financial decisions. Mint and Personal Capital are both great tools that can track and categorize your spending if you don’t feel like tracking it all yourself. 

Calculating Savings Rate:

There are a number of ways to calculate your savings rate (%). Regardless of the method you choose, it is important that you remain consistent and also understand how others calculate their savings rate so you can compare apples to apples. We calculate ours by dividing our savings by our gross income (+ employer retirement contributions). Our savings calculation:

  • Includes:
    • EmployER Retirement Contributions
    • EmployEE Retirement Contributions
    • Money NOT spent (labeled as “Other Savings”).
  • Does NOT Include:
    • Mandatory Deductions (federal/state tax witholdings)
    • Optional Deductions (insurance)
    • Spending

A lot of our savings is actually generated from automatic deductions we setup with our employers that goes directly into our retirement vehicles (401k, 403b, 401a, TSP, & HSA) before the money hits our bank account. Additional savings (labeled as “Other Savings” is put toward our taxable brokerage account, college 529s, and savings for major expenses (like front-loading our IRAs each January and a downpayment for the house we are closing on in May)!

Click HERE to view a copy of the spreadsheet we use to calculate our savings rate. Feel free to make a copy of it and use/edit it to meet your needs.

As you can see we BARELY made our savings rate goal this quarter. Below are some of our major areas of spending for the last three months:

  • Wedding = $7671
  • Rent = $3477
  • Food/Dining = $1730
    • Groceries – $1606 
    • Restaurants/Bars – $525.50
    • Fast Food – $49
    • Coffee Shops – $14
  • Disability Insurance (Annual Policy) – $1884
  • Auto = $897
    • Auto Insurance (6 Months x 2 cars) – $530
    • Fuel – $367

Major Expense Categories:

Unfortunately weddings aren’t cheap. Neither is disability insurance, but it’s a must have and fortunately only comes out once a year. We could probably make more of an effort to decrease our food spending, particularly because it’s just the two of us (I AM PROUD of only spending $49 on fast food); however, we do get a lot of personal joy and fulfillment cooking at home (for both ourselves and friends) and going out with friends. We do actually make an earnest effort to not eat out more than once a week and meet that goal most weeks. 

Final Thoughts:

In order to achieve Financial Independence you HAVE to save a reasonable portion of your income. If you have not read the post The Shockingly Simple Math Behind Early Retirement yet, you definitely should. I am excited about the fact that even with some major expenses in unusual areas we still maintained a 40%+ savings rate for the quarter. We have our sights set on 50-60% for the remainder of the year. We are excited about continuing to make a conscious effort to avoid lifestyle creep and save as much as we can while spending money on things that we find true value in.

What was your savings rate this quarter? What are your major expenses? Do you find true value in them? If not, what steps can you take to reduce your spending in those categories? Comment below!

What’s in your retirement portfolio?

[Editor’s Note: This is an independent post written by Jack.
This post may contain affiliate links. Please read our disclosure for more info.]

What to invest in?

Once you land on a Risk Allocation that you’re comfortable with the next step is to figure out how exactly you want to allocate your investments. I can’t make that decision for you, but I have linked a couple books and blog posts below that I have found very helpful and used personally for guidance if you are unsure where to begin:

Jack@TeachFI’s Portfolio:

As you can see above our portfolio is a pretty simple one (five funds) at its core:

  • 55% U.S. Stock Index Funds (40% Large-Caps & 15% Small-Caps)
  • 20% International Stock Index Funds
  • 20% Bonds/Cash
  • 5% Real-Estate Investment Trusts (REITs)

You’ll notice we are strictly index fund investors – we do NOT pick individual stocks. One of the beautiful thing about index funds is that with we are quite diversified with only a handful of index funds – over 10,000 companies worldwide. Where it gets a little more complicated is deciding which retirement vehicle(s) to invest each of those funds in a way that reduces expenses, fees, taxes, etc. as much as possible. Combined our employers provide us with the ability to invest in a 401k, 457b, 401a, and TSP (military thrift savings plan); furthermore, invest within our IRAs, taxable brokerage account, and a savings account. Here is the breakdown of our portfolio:

  • Large-Caps Index Fund (S&P 500)
    • 401k, 457b (Roth) , 401a, TSP, & Taxable Account
  • Small-Caps Index Fund
    • IRAs (Roth) & TSP
  • Total International Index Fund
    • Taxable Account (we only keep this in our taxable account to take advantage of the Foreign Tax Credit).
  • Bonds/Fixed
    • TSP, Taxable, Savings
  • REITs
    • IRA (Roth)
  • Future Considerations:
    • Increasing our real-estate allocation by potentially investing in rental property, syndications, etc.
    • Moonlighting as a physician will enable my spouse to contribute employER contributions to a solo-401k.
    • Investing within our HSA (won’t be able to contribute to this after April during military years).

How Do We Keep Track?

Looking above you can see we are technically invested in 11 funds in addition to our cash. In a perfect world we could simply invest in our five-funds in one account and watch it grow. Unfortunately that’s not how saving for retirement works. Each of our retirement vehicles has different funds available with different expense ratios, management fees, etc. While our spreadsheet probably seems overwhelming at first glance, once you start to wrap your head around it you’ll see how comprehensive and informative it is. In addition to the name of each fund, its ticker symbol, there is also the following information:

  • Column A & B = the account(s) the fund is held in. 
  • Column B & C = If it’s held in taxable brokerage account we put the order of investing for tax-loss harvesting purposes.
  • Column D = When we invest in the fund. For taxable brokerage account the specific dates the most recent shares were purchased or sold.
  • Column E = Expense Ratios (ER) assessed by the fund manager.
  • Column F = Actual asset percentages.
  • Column G = Current $$’s in each fund.
  • Column H = Desired asset percentages.
  • Column I = Desired $$’s in each fund.
    • Based on total $$’s in all funds and desired asset percentages.
  • Column J = How many $$’s to add/remove from each fund to rebalance according to our desired asset allocation.
  • Column K = Since our portfolio is a combination of retirement and non-retirement accounts, rebalancing our portfolio is not as easy as buying/selling funds. I Column J to get a ballpark figure of where to start and then start adding/removing money in Column K
  • Column L = Calculates new totals based on changes made in Column K.

We generally rebalance as we add new money to our portfolio using columns I & J as guidance; however, we also have the “Actual %” cell blocks triggered to turn red if we are outside of the 5/25 Rule and will rebalance then as well by moving money within our retirement (tax-protected space).

A Simpler Version

Most people’s portfolios are much less complex than ours, and many are far MORE complex than ours. What if yours is simple, though? If you don’t have a taxable brokerage account, aren’t worried about tax-loss harvesting, have just a few retirement vehicles (or less), you may find our spreadsheet for tracking our 529 accounts far more desirable. In essence it’s just a two-fund portfolio (90% large caps / 10% bonds):

The cells are formatted to trigger to the color red if they’re outside of +/-5% of the desired asset allocation to remind you to rebalance; however, we just rebalance by following the “To Correct” column when adding new money.

Let’s reference Student 2 as an example. If we wanted to add $5000 to their 529 plan, we simply type it under “Added $$” in Column G and then Column J tells us how to allocate the the new money to reestablish a 90% stocks / 10% bonds allocation.

Putting It All Together

The above image is a what our spreadsheet looks like in its entirety.

Click Here if you’d like to make a copy of this spreadsheet and modify it for your own use!

Upcoming Video Tutorial

In the coming weeks keep your eye out for a video describing in more detail how we use both spreadsheets to inform us when adding new money to and/or rebalancing our portfolio.

What do you invest in and how do you keep track? What strategies do you use to rebalance your portfolio? Comment below!

Book Review – Taxes Made Simple: Income Taxes Explained in 100 Pages or Less

  • Piper, M. (2018). Taxes made simple: Income taxes explained in 100 pages or less. Simple Subjects, LLC.
  • Category: Taxes
  • Recommended Financial Literacy Level: [Novice]
  • Recommended Audience: 
    • Anyone interested in either learning how to file their taxes or learn more about how to reduce their tax burden (effective tax rate).

I’ve filed my own taxes (using tax software for convenience compared to the paper forms) for about six years now. Mike Piper and I agree that there are huge benefits in learning the basics of filing your taxes. I know there were for me. Not only did I save money by not hiring out, but I also learned how to maximize the ROI of my investments and lower my overall tax burden. I am confident reading his book and/or using google/forums as you file on your own will allow you to make more informed decisions about your financial planning, which will, in most cases, also result in a lowering your effective tax rate.

His book is very well written to define/explain terminology and introductory concepts to even the most uninformed tax filers; furthermore, he provides relatable examples consistently throughout the book to aid in your understanding. See below for the table of contents:

  • Introduction – Is this the right book for you? Why bother learning this stuff?
  • Part One – Basic Concepts
    • Chapter 1 – Income Tax: It’s Progressive
    • Chapter 2 – Deductions and Credits: What’s the Difference?
    • Chapter 3 – Calculating Your Refund
  • Part Two – Taxable Income and Taxable Gains
    • Chapter 4 – Taxable Income
    • Chapter 5 – Capital Gains and Losses
  • Part Three – Important Deductions and Credits
    • Chapter 6 – Saving for Retirement: IRAs and 401(k)s
    • Chapter 7 – Other Important Deductions
    • Chapter 8 – Important Credits
    • Chapter 9 – Tax Breaks for Education Expenses
  • Part Four – Other Important Things to Know
    • Chapter 10 – Tax Forms
    • Chapter 11 – State Income Taxes
    • Chapter 12 – Alternative Minimum Tax
  • Conclusion – Do it Yourself or Get Help from a Professional?

Jack’s Biggest Takeaway:

We are interested in increasing the real-estate portion of our

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at some point through the purchasing of rental property. I did not realize that passive income (rental income as an example) is not subject to Social Security and Medicare Tax. Additionally, Mike Piper described some of the common deductions/credits associated with rental properties that I was not yet aware of.

Final Thoughts:

Do you NEED to read Mike Piper’s book to successfully file your taxes? Nope. Is it a great resource? Absolutely! Like I mentioned before, I’ve filed my own taxes for six years now and still learned from his book; furthermore, as a teacher myself, I feel like Mike does a great job breaking down a subject that is often daunting for people. Another great advantage of his book is it’s updated regularly to reflect tax code changes. Consider adding it to your own library or purchasing/sharing it with a friend that has been on the fence about deciding whether or not file their own taxes or is just curious about how to reduce their effective tax rate.

If you’d like to support our mission and are interested in purchasing Taxes Made Simple, please click here for your purchase! 

Have you read Taxes Made Simple? What are your thoughts, likes/dislikes, and biggest takeaways? Comment below!

Filing taxes and reducing your taxable income.

[Editor’s Note: This is an independent post written by Jack. This post contains affiliate links. Please read our disclosure for more info.]

Tax Software:

Firstly, if you haven’t tried filing your own taxes I recommend you take the plunge! Most tax situations just aren’t that complicated and can quickly be done with the aid of very affordable tax software (in fact if your tax situation is simple enough most softwares are even free to use). I’ve e-filed for about 6 years now. I’ll admit that doing so costs me some time, but saved me A LOT of money. You can argue that paying an accountant doesn’t cost that much in the grand scheme of things, and I would agree with you; however, by paying someone to do it you’re missing out on a VERY valuable educational opportunity.

I learned a lot my first year filing using TaxAct and continue to learn more each year that I file. TurboTax is by far the most popular tax software around, and it’s arguably more user friendly than TaxAct, but I continue to use TaxAct because it has been consistently cheaper for MY tax situation. The last two years I’ve actually input all of my information into both softwares to compare the two (see the image below), and TaxAct continues to be cheaper for me. Regardless TurboTax, TaxAct, and tax software in general is informative, offering explanations and examples as you progress through inputting your information; however, if you’re feeling any hesistancies, don’t be afraid to consult forums (such as Bogleheads), books (such as Taxes Made Simple by Mike Piper), or a tax professional.

***ACTIVE MILITARY personnel can file their taxes for FREE through H&R block.

Reducing Taxable Income:

Many financial hobbyists out there are big advocates of filing your taxes via paper forms at least once (completely free minus postage) because of how instructional the experience can be. Honestly I haven’t done that yet, but in preparation for writing this post I did go through a line-by-line analysis of the digital copies of my tax forms from 2017 and 2018. The chart below compares my income, deductions, credits, and taxes for each year (click here to make a copy of this spreadsheet for your own use):

You may have noticed that I earned a higher income in 2018 versus 2017 (technically my social security and medicare wages were pretty close, though), but I paid significantly LESS in taxes . Federal Tax Reform contributed a bit to the difference (notice my marginal tax rate decreased from 15% to 12% as a result), but we also took some additional steps to reduce our taxable income this year:

  • What WE did in 2018:
    • Contributed 28k to 529 accounts. This reduced my state taxable income to only $3308, meaning I only owed $14 to south carolina.
    • Tax-Loss Harvested about 22k of losses in our taxable investing account during the last (brief) bear market. This not only allows us to deduct 3k of our ordinary income this year, but we can also carry those losses forward, allowing us to deduct 3k of our ordinary income for the next 5ish years.
  • What we will do in 2019:
    • Contribute to a Health Savings Account (HSA).
    • Ensure dividend income is “qualified” by holding the share(s) at least 60 days within the 120 dividend distribution window.
    • Don’t realize any capital gains (sell investment shares in a taxable account with a net gain). We were taking steps to merge our finances by consolidating our investment accounts, and I just didn’t think about the consequence of liquidating my taxable account to put it in a joint account at the time. I should’ve just held onto that taxable account for later in life, donated the shares to charity, etc.
    • Continue Tax-Loss Harvest if the market takes a downturn and use our carryover losses to deduct 3k of our ordinary income.
  • Other deductions/credits I’ve used in the past:
    • Deductions: State/local taxes, mortage/student loan Interest, PMI, charitable donations, flexible spending account contributed to a flexible spending account (FSA),
    • Credits: Education Credits, Foreign Tax Credits
    • Don’t be afraid to consult google or the library about all of the possible deductions/credits available to you. Taxes Made Simple has a few great chapters on many common credits/deductions that would apply to the average filer at some point.

Terminology:

  • Social Security Wages: employEE and employeER pay 6.2% EACH
    • Caps at $128,400 of wages earned.
  • Medicare Wages: employEE and employER pay 1.45% EACH
    • No cap. Increases to 2.35% EACH for wages earned beyond $200,000 ($250,000 filing jointly).
  • Adjusted Gross Income (AGI): includes additional income not reported on your W2 and “above the line deductions”.
  • Taxable Income: AGI minus allowances for exemptions and “below the line (standard or itemized) deductions”.
  • Taxable Interest: usually earned via money held in bank accounts (checking, savings, CDs, etc.).
  • Tax-Exempt Interest: interest earned that is exempt from federal and/or state taxes, usually from tax-exempt or municipal bonds.
  • Ordinary Dividends: dividends taxed as “ordinary income, because they were paid out on investments in a taxable account and did not meet requirements to “qualify” for the capital gains tax rate.
  • Qualified Dividends: dividends taxed under capital gain rates, because they were paid out on investments in a taxable account and met the requirements to “qualify” for the capital gains tax rate.
  • Capital Gains: gains “realized” from selling investment shares in a taxable account that are worth more than originally purchased.
    • Long-Term Capital Gains (LTCG) are those held for a year or longer and are taxed at the capital gains tax rate.
    • Short-Term Capital Gains (STCG) are those held for less than a year are taxed as ordinary income.
  • Capital Losses: losses “realized” from selling investment shares in a taxable account that are worth less than originally purchased.
    • Can be used to offset realized capital gains and UP TO $3,000/year of ordinary income (an “above the line deduction”).
  • Standard Deduction: the amount each filer is entitled to deduct from your taxable income by default. It’s essentially an automatic “tax break”.
    • The large majority of filers will fall under this category, particularly after the recent tax reform which raised the standard deduction ($12000 for single filers, $24,000 for married filing jointly filers).
  • Itemized Deduction: if the total of your “below the line deductions” exceeds that of the standard deduction, then filers can opt to use their total itemized deduction in lieu of the standard deduction.
    • Examples include mortage interest, student loan interest, private morgage insurance (PMI), etc.
  • Foreign Tax Credit: a credit issued for taxes paid on foreign investments in a taxable account.
  • Marginal Tax Rate: the percentage of taxes you would pay on your last/next dollar earned. What most people consider their “tax bracket“.
  • Effective Tax Rate: your income tax(es) divided by your taxable income. Most people use this as a reference for year-to-year comparison.
  • Actual Tax Rate: this is not an “actual thing” like the other terms listed above. We do however find this calculation useful and determine it by simply dividing our taxes by our total income.

What tax software do you use (if any and why)? What percentage of your income are you paying in taxes? What steps, if any, do you plan on taking next year to reduce your taxable income? Comment below!

Book Review – How to Think About Money

How to Think About Money

  • Clements, J. (2016) How to Think About Money. Author.
  • Category: Money
  • Recommended Financial Literacy Level: [Novice]
  • Recommended Audience: 
    • A great entry-level book for those just getting started on their journey toward financial independence.

“First and foremost, money buys time and autonomy. Secondarily, it buys experiences. Last, and least, it buys stuff, and more often than not, the stuff we buy makes us miserable.”

I really enjoyed Clements candor and insights regarding money. It really is quite fascinating that, in most cases, all it takes to become wealthy is a paradigm shift of our financial priorities. We just have to adapt and learn to think about the problem differently. The following is the table of contents of his book, including a brief description I wrote for each “step”:

  • Foreword by William J. Bernstein
  • Introduction
  • Step No. 1: Buy More Happiness
    • Discusses how people fail at getting the most out of their money, because we aren’t very good at knowing what will us happy. Includes a series of reflective questions as an activity to really get you thinking about what brings value and happiness to your life.
  • Step No. 2: Bet on a Long Life
    • Although we are often times part of the “YOLO” (you only live once) or “I won’t be young forever” culture, most of us will live longer than we realize and need to adequately prepare for it.
  • Step No. 3: Rewire Your Brain
    • The meat of this chapter contains a list of 22 financial mistakes people often make, the consequences of those mistakes, and how to avoid/rectify those mistakes moving forward.
  • Step No. 4: Think (Really, Really) Big
    • Don’t underestimate your income-earning ability over the long-term; furthermore don’t forget to consider spending, health/fitness, and family.
  • Step No. 5: To Win, Don’t Lose
    • “If we want to add to our wealth, we should minimize the subtractions.” Includes tips on how to think about risks and debts that are generally overlooked.
  • Final Thoughts
  • About the Author
  • Notes

Jack’s Biggest Takeaways:

  • I had never considered thinking about debt as “negative bonds” canceling out the bond/fixed portion of a retirement portfolio, and in many cases, leading to a riskier asset allocation overall. As renters we do not currently have any debt, but when we do purchase a home or even rental property in the future I will definitely have to rethink how that affects my overall asset and risk allocation.
  • “If you have saved enough to lead the life you want, you have won the game. There is no logical reason to continue to play and risk throwing away financial security.” This statement really resonated with me. I know a lot of people in the FI community advocate for not only having extremely risky portfolios (100% stocks as an example) building toward FI, but maintaining high risk allocations through retirement. We haven’t won the game, but we certainly don’t need to go, or stay, all in to do so.

Final Thoughts:

If you’re reasonably financially literate already, you probably won’t learn anything mind-blowingly new by reading Clements book; however, I bet you’ll still enjoy it! To close, I’ll share one more quote from his book:

“For 10 years after we are gone, most of us will be forgotten — except by family and close friends. We will live on in their memories. That’s the closest any of us will ever get to immortaility, at least on this earth. My advice: Make sure the memories are good.”

If you’d like to support our mission and are interested in purchasing How to Think About Money, please click here for your purchase! 

Have you read How to Think About Money? What are your thoughts, likes/dislikes, and biggest takeaways?